Vodacom Group Ltd will be buying local internet-provider Neotel Pty from India’s Tat Communications Ltd, their reason -to boost its data offering.
The transaction will cost 7 billion rands which is $676 million, and Vodacom says that it will get its finances through cash and existing credit facilities. The two companies are looking into starting the process immediately but it’s still subject to regulatory approval.
Vodacom is now focusing on small- to medium-sized business customers and expanding Internet and data services to offset declining revenue from its domestic voice division. Neotel’s spectrum would help Vodacom add Internet users as it competes against South Africa’s biggest fixed-line operator Telkom SA SOC Ltd. and MTN, Africa’s biggest mobile-phone company.
“This is good news for competition in both the consumer and enterprise sectors,” said Vodacom Chief Financial Officer Ivan Dittrich. “On the consumer side the combined entity will be a stronger fixed player and will be able to offer a wider range of services. It will also help us to accelerate the provision of services like fiber to the home.”
Vodacom has been in exclusive talks with Tata over Neotel since September, and issues relating to the deal weren’t resolved until yesterday, CEO Shameel Joosub said on the same call. The company won’t have to take on Neotel’s debt as part of the acquisition, while the next step would be to gain clearance from the Independent Communications Authority of South Africa (ICASA) and the Competition Commission.
Vodacom shares fell as much as 1.7 percent and traded 1.5 percent lower at 127 rand as of 9:37 a.m. in Johannesburg, valuing the company at 189 billion rand. The stock is down 4.6 percent this year.
Mobile operators around the world are turning to fixed-line assets that allow them to sell a wider range of services and carry data traffic more efficiently.
Vodacom full-year net income increased 1.9 percent to 13.2 billion rand as data usage and a rise in international customer numbers offset a fall in domestic voice revenue. The company is expanding in markets such as Mozambique and DRC- Congo as the South African market becomes saturated.